Threshold Effects in the Relationship between Interest Rate and Financial Inclusion in Nigeria
Keywords:
Interest Rate Thresholds, Interest Rate, Financial Inclusion, Threshold Model.Abstract
This study uses a non-linear threshold model to shed light on the impact of interest rates on financial inclusion in Nigeria for the period 1981 to 2014. The findings suggest that the threshold level of interest rates in Nigeria is estimated at 16.9 percent. In other words, interest rate hampers financial inclusion if it exceeds 16.9%. Below this threshold, however, the impact of interest rate remains insignificant. Thus, the results of this study support financial inclusion-dampening effects of interest rates in Nigeria. The logical conclusion is that Nigeria, and other developing countries as well, with lending interest rates above 16.9 percent should aim to attain interest rate levels that do not deter financial inclusion by adopting polices that drive down interest rates.
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